Dollar Store Report Card: DG, DLTR, FDO

DLTR still rules supreme among dollar stores, but the sector as a whole is weak

Family Dollar (FDO)

Click to EnlargeFamily Dollar’s (FDO) second-quarter earnings report was awful, and it was the second consecutive quarter of bad earnings. This time, FDO blamed winter weather and a shorter calendar for its woes. Earnings dropped from $1.21 per share in the year-ago quarter to 80 cents.

A number of changes were announced by management to try to improve the company’s financial performance going forward, but many of these were negative, such as closing stores and laying off staff. FDO stock has been floundering ever since, and the company has been rumored to be a takeover candidate. Paulson & Co. recently sold a very large stake of FDO stock, and earlier this year, Family Dollar’s chief operating officer resigned.

The best one can say about Family Dollar is that it does offer some backside protection in the form of a 2.2% yield, and it’s slightly cheaper than DLTR with a 17 P/E. Of course, that’s largely thanks to a 20%-plus slide off its peak in the fourth quarter of 2013. Meanwhile, ROE is 26%.

Lastly, FDO stock is currently sitting on its 200-day moving average, and has been trading sideways over the last month, so it’s possible it could find support at this level.